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The PESTLE Analysis is a common approach for examining the general business environment in order to manage the future opportunities and threats from probable changes in the environment (Mullins 2002) by analyzing the Political and legal conditions, Economic conditions, social and cultural conditions, technological conditions and environment related issues. In the following we will execute a PESTLE Analysis on the E-Commerce sector of the Chinese market. And as proposed by Neil Botten (2008, p.39) that there are no pure factors because these factors are interlinked.
Political and legal analysis
Political factors include government regulations and legal issues and define both formal and informal rules under which firm must operate. And it is claimed that the political force is probably the most turbulent force in the environment (Fahey & Narayanan 1986). In the past one decade, the Chinese government attaches great importance and focus to the development of e-commerce in the most populous country, for example, on issuing the Summaries of the Middle/Long Term Science and Technology Development Plans of China and the Development of Information Industry Plans in the Eleventh Five-year and Long Plan in 2020 Years in The Ministry of Information Industry, the “application of e-commerce platform technology” has been listed as a key point (Li 2010, p.260).
In term of the legal system, the Chinese legal framework for e-commerce is still in its nascent stage and has already experienced several problems. China has limited experience with drafting e- commerce legislation for issues such as transactional security, intellectual property rights protection and tax. And regulations supporting areas critical to the development of e-commerce such as the privacy, consumer rights, and validation of electronic contracts and recognition of digital signatures have yet to be written (Kariyawasam 2011, p.270). But the legal system of China does develop quickly to meet the needs of the e-commerce.
Any development in the economic part of a country’s environment could have significant impacts on the SMEs and their activities. These factors include the total GNP trend, GDP per head, inflation rate, exchange rate, energy and raw materials availability and cost, employment level, interest rate, monetary and fiscal policies, banking policies an investment and so on (Analoui & Karami 2003, p.75).
Figure 2 Growth of China GDP per capita in the new century
Source: The World Bank Group 2011
Above is the growth trend of the GDP per capita of China in the new century, similar to the indicator GDP, the country has sustained a continual rapid growth in term of GDP per person, indicating that each people is creating more and more values to the society resulting in the increase of the individual consumers’ purchasing power. Though the economic situation is seems to be good, the economic development does slow down a little and also with worrying trends such as high inflation rate and high property prices. According to the most recent news, the consumer price index rose 6.1 per cent from a year earlier in September, down from a three-year high of 6.5 per cent in July. Politically sensitive food prices, however, increased by more than 13 per cent. The overall economy has now slowed for three consecutive quarters – largely the result of BeiJing’s efforts to cool growth and dampen inflation. The central bank of China, the People’s Bank of China, has increased interest rates five times over the past year and increased the reserve requirement for commercial banks for nine times, and at the same time also asking banks to reduce lending and imposing limits on home purchases to curb property and consumer prices (Anderlini 2011).
Social and cultural analysis
To understand the social and cultural environment involves close analysis of the society. Demographic changes such as population growth, movements and age distribution will be important, as will changes in cultural values and social trends such as family size and social behaviors (Dransfield 2005, p.60). Such factors could include:
With the rapid economic growth, there are growing people having Internet access and use the Internet to do shopping. Many people have called themselves the Taobaoer by spending much of their monthly expenditure on Taobao, the largest B2C e-commerce website. In 2010, China’s online shopping industry had a turnover of $80bn, and grew 87% year-on-year. China’s 420 million Internet users spend around a billion hours each day online and last year, 185 million made at least one online purchase. According to Boston Consulting Group, the volume is expected to increase fourfold by 2015. And E-commerce has already been changing the way Chinese consumers think about shopping: online, it is more social than a hard sell. It’s a new engaging experience to savour (bbc.co.uk 2011). But like many other physical shopping, cheating and fake products are common in the online shops though the most populous shops tend to sell quality and price competitive products to the customers or will state clearly the possible quality problems of the products in the introduction of the products in the pages. And also according to Patricia Ordóñez de Pablos and Miltiadis D. Lytras (2009 p.406) In Chinese business there is often a need and expectation for face to face contact to exist in order to build up a sense of trust which is related to the Hofstede’s notion of individualism-collectivism in which the Chinese culture is considered as having a high collective scores (Hofstede 1997).
Technological factors include areas such as new products being developed, new purchasing mechanisms (intranet, extra-net), new production technology, new distribution mechanisms (Internet) and new methods of working (e.g. mobile telecommunications) (Botten 2009, p.39). One technological problem that hinder the development of the Chinese B2C industry is the lack of a stable and secure online payment systems and this problem is further strengthened by the Chinese consumers’ preference for high Uncertainty Avoidance Index (UAI) and high Long-Term Orientation (LTO) (Hofstede 1997). What is more, based on the perspective of Ortolani (2005) there had been only 1 percent credit card penetration in China suggesting that the most widely used payment method had low acceptance in China and the payment system to support online credit card transaction is also facing low usage. And the lack of safe online credit card payment system is one of the key reasons behind this low usage and penetration.
Environmental factors refer to all the factors directly related, influenced or determined by the surrounding environment. This includes, but is not limited to weather, climate, geographical position, climate change and even insurance (Heldman 2011). Despite the fact that the environmental protection work is still low in China because the majority of focus and priority had been attributed to the alleviation of poverty and economic development which result in the low public participation in the environmental protection work, in the recent years, with the substantial economic advancement and raised living standard, income level and also the degradation of environment in the country, the Chinese government has started educate the public about the environmental protection. And with a joint effort from the non-governmental organizations (NGOs) and media such as newspapers, radio and tv, we are witnessing an increasing environmental awareness in the public resulting in changes in the consumer behaviors to put environment protection in a higher importance level (Heggelund 2004, p.157).
Conclusion of the PESTLE analysis
As proposed by Björn Möller (2010, p.6), with the help of the PESTLE, companies would have the possibility to understand the external macro-environment in which they operate and might operate in the future. Here based on the analysis we have above, we are able to draw some conclusions. Firstly, very stable political conditions and rapid economic growth has made the e-commerce industry in China attractive to investors and the increasing awareness of environment protection also promote the way of e-commerce as it creates less pollution and damage to the environment; secondly, there are also risks such as lack of trust, stable and secured online payment systems and lack of legal protection that create challenges and uncertainties to the players in the industry.